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Daily Newsletter, Thursday, 02/01/2001

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The Option Investor Newsletter Thursday 02-01-2001
Copyright 2001, All rights reserved. 1 of 2
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************************************************************
MARKET WRAP (view in courier font for table alignment)
************************************************************
02-01-2001 High Low Volume Advance/Decline
DJIA 10983.60 + 96.20 10983.80 10864.20 1.09 bln 1718/1375
NASDAQ 2782.79 + 10.06 2796.89 2742.44 1.78 bln 1820/1969
S&P 100 719.70 + 4.50 719.70 711.25 totals 3538/3344
S&P 500 1373.47 + 7.46 1373.50 1359.34 51.4%/48.6%
RUS 2000 508.94 + 0.60 508.94 505.23
DJ TRANS 3127.82 + 20.06 3129.01 3091.99
VIX 23.99 - 0.30 25.69 23.90
Put/Call Ratio 0.53
*************************************************************
Blame it on CSCO!
That was not much of a dip this morning and if you missed the
first one there was a second chance around 2:PM. Still the
trading range on the Nasdaq was only 54 points on the lightest
volume day of the year. The Dow fell at the open as well after
the NAPM report caused worries that the economy was in worse
shape than previously thought. After wandering aimlessly for
most of the day the Dow headed for 11000 around 2:PM and came
very close.
The NAPM this morning was as close as you can get to a smoking
gun on the theory that we are already in a recession. At 41.2
the index is only +1.2 over the commonly agreed recession level
of 40. This is the lowest level in a decade. Below 50 is
considered a contraction and below 40 a recession. The new
orders component is definitely at recession levels at 37.8, this
is even lower than the 38.1 we hit during the 1991 recession. The
prior low was in the 33 range during the 1982 recession. 26% of
the 350 firms polled in this survey said inventory levels were
too high and orders were still slowing. The "it can't get any
worse" crowd is seeing the light that maybe it really can get
worse.
This severely depressed NAPM index put the dampers on the market
until traders decided that the worst case was more rate cuts
and a tax cut. Once the smoke cleared the bargain hunting began.
It did not hurt to find out from the Dec-19th FOMC minutes that
the "surprise" rate cut was not really a surprise. They planned
it at the December meeting. If you remember they shifted their
bias to a weakening economy but did not cut rates. The minutes
said "The committee should be prepared to respond promptly to
indications of further weakness in the economy." The evidence
of weakness came less than two weeks later when the NAPM report
for December reported a large decline in activity. This is the
same report that came in even weaker today. The next day the
Fed head convened a conference call of the committee and approved
unanimously a 50 basis point cut. Some members argued during
the December meeting that "enough evidence of further weakness
already existed to warrant immediate action." They agreed to
hold off as long as the committee agreed to act promptly in
the coming weeks should any further weakness appear. This
unanimous agreement that the economy is rapidly decelerating
should keep the Fed on the rate cut program for several months
in the future. Many analysts expect another surprise rate cut
before March. That would be a great day to be long!
Another high profile layoff is looming from GE. Business Week
said today that GE will layoff 75,000 employees in an effort
to trim costs resulting from the economic slowdown. GE dropped
at the open on the news but then issued a press release saying
that, yes, they were planning some layoffs but the 75K number
was wrong. They did not say what the number was but in corporate
speak it simply means that they will not layoff EXACTLY 75,000,
maybe 74,999 or lower or even 75,001 or higher. Just not exactly.
Even with the manufacturing meltdown today most traders said
they were more concerned about the CSCO earnings on Tuesday.
After CEO John Chambers made increasingly bearish comments
twice in the last month, there is some serious dread about
the CSCO guidance going forward. Nobody is actually whispering
that CSCO will miss estimates but there is rampant speculation
that the guidance going forward could be bleak. With CSCO being
the proxy for the entire tech sector any serious change in
guidance will not be appreciated. Still, everyone knows there
is a slowdown and as long as there is not a disaster investors
will breathe a sigh of relief and start buying techs again.
The Nasdaq did finish positive with 105 new highs and only 17
new lows but there was no widespread buying binge. Nasdaq:NTAP
soured the mood of the tech market this morning when CSFB
downgraded them citing stronger competition from multiple
companies starting with EMC. NTAP dropped over -$7 on the news.
Chip stocks also weakened with Nasdaq:AMCC, Nasdaq:PMCS,
Nasdaq:BRCM, Nasdaq:NVLS falling ahead of the Nyse:NSM warning
after the close. National Semi said excess inventory at customer
locations and slowing consumer sales would take about -33% off
their earnings.
After the close CMTN also warned that they would suffer a
substantial sequential decline in revenue for the next quarter.
CMTN, a DSL equipment maker, said they expect challenges to
increase in 2001 and future buying patterns were providing
limited visibility at this time. Translation, "we don't know
what the heck is happening but nobody is buying anything!"
APCC missed estimates after the close by three cents and then
said they were rescinding all guidance going forward. They said
the forecast was pretty bleak and analysts could forget any
prior estimates. See translation in previous paragraph.
Is the recession still in front of us or are we already bottoming
out? With home sales and consumer sales rising slightly many
analysts feel the worst is over. They are still in the minority
however and that is causing many investors to wait on the
sidelines. With the non-farm payrolls on Friday morning many
appear to be sitting on their cash and waiting for a sign.
As I said on Wednesday, I expected a dip on Thursday and possibly
Friday morning but be ready to buy the dip or a breakout above
2870. The Dow is only 27 points away from 11,000 and serious
resistance. The VIX is only .22 off a four month low which is
a bad sign. It is signaling that there may still a dip to come.
Most serious market drops come when the indexes are testing old
highs and 11000 has held every time since September.
There is no reason for the markets to fall other than a disaster
from CSCO or a Jobs Report tomorrow showing several hundred
thousand more jobs than the 90,000 expected. If the Dow does
break 11,000 and hold it would be a major buy signal, as if
an aggressive Fed and tax cuts were not enough. Friday should
be real interesting with the next milestone CSCO earnings on
Tuesday. I am still in "buy the rebound" mode but we have not
really seen a dip yet. This is a really dull market and dull
markets tend to end abruptly one way or the other. Look for
a possible spike at the open followed by profit taking. If
bargain hunters appear in the last hour I would consider
joining them. According to Austin at IndexSkybox.com the
commercial traders are still shorting at historical levels.
If the Dow breaks out it could cause a huge short covering rally.
Enter passively, exit aggressively!
Jim Brown
Editor
www.OptionInvestor.com
************************************
Spring Options Workshop and Bootcamp
April 5th-9th, Denver Colorado
************************************
OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
event is structured to fully educate you on advanced option
strategies and will make you a better and more profitable trader.
If you attended the March Denver Expo last year and thought it
was the best function you had ever attended... You haven't seen
anything yet! Great food, entertainment, education and just
plain fun in sunny Denver. The biggest complaint in March was
the massive weight gain experienced by the attendees from the
gourmet menu. We know how to put on a function. Ask anyone who
came last March!
We guarantee the speaker lineup to be second to none. In the
October seminar not only did we have Jim Brown and over 15 of
the OIN staff but Steve Nison, the father of modern candlestick
charting. Also, Dick Arms, creator of the Arms Index or the Trin
Indicator, Gregory Spear, author of the Spear Report, Stan Kim,
founder of the Snail Trader System and Jim Crimmins, president
of TradersAccounting.com. We promise the lineup this April will
exceed your expectations again!
This is not a beginner seminar but if you feel the need to brush
up on the basic trading strategies then we have an optional boot
camp the day before the four day seminar begins. If you have
traded options before and you are comfortable with the basic
strategies then this seminar will take you to a new trading
level. If you have been trading options for sometime and are
ready to broaden your knowledge and improve your trading results
in all kinds of markets then this is for you. Meet and interact
in a small group setting with the writers you have seen in
OptionInvestor for the last four years.
We are starting the seminar with an optional one day boot camp
which will cover all the basic strategies, calls, puts, leaps,
covered calls, naked puts, spreads, straddles, etc. This will
help investors not familiar with all the basic strategies get
up to speed before the intensive education and the advanced
material in the main seminar. The boot camp will be 8 hrs of
personal instruction by the OIN staff.
The main seminar will begin with a reception, dinner and
entertainment on Thursday night and continue non-stop until
noon on Monday. We mean non-stop. We don't quit until you do
and many optional sessions last until 10:PM or later.
The detailed schedule will be posted in about two weeks. There
will not be individual breakout sessions during the day. Each
topic will be covered in 1-2 hr general sessions taught by one
or more OptionInvestor staff and presented on three giant screens.
In the evening we will offer five of our popular chalk talk
sessions for that personal question and answer interaction.
The list of instructors is led by Jim Brown and will include
many OIN staff with outstanding guest speakers during lunch
and dinner each day. The Spring Denver Expo seminars fill up
fast and seating is limited! SIGN UP NOW or risk missing out
on this opportunity.
Unlike other seminars with only two or three instructors, you
will get in-depth knowledge from many different instructors
who are experts in their field.
The cost for the four-day workshop, April 6th to 9th is only
$2995 (spouse only $1495). This includes breakfast, lunch and
supper each day. All course materials, a CD of all the
presentations and a professional video package of the entire
seminar so you can review the material at home in the comfort
of your living room. There is also a $500 discount if you
have attended a prior OIN seminar.
This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
yet personalized options education like this?
Do not delay as seating is very limited.
We guarantee you will not be disappointed!
You can pay for your education one bad trade at a time or you
can invest less money one time to learn how to do it right.
Click here for more info:
https://secure.sungrp.com/workshop/april01/index.asp
If you have not been to one of our Denver Expo seminars before
here are some comments from previous attendees:
The words herein are totally inadequate to express what I am
feeling about you and all the OptionInvestor organization. But
this medium is all I have. Thank you more than these few simple
words can say.
Wow, what a seminar! In my 25 years of investing I have attended
many instructional conferences, but I have never, never experienced
one like your Options Expo. The instructors were absolutely tops.
Subjects, generally were on target. Especially for me, the Skybox,
index funds/options and the early morning strategies and trading
were particularly great. The attention to the many details and
nuances were especially evident, and I guess most of the credit
that area goes to your great support team.
Now, the real challenge is to apply and implement the powerful
knowledge I was exposed to.
Sincerely and warmly,
Kevin Hughes, Denver
************
Jim & Staff,
I am sitting in the hotel room after a great 3 days in your
seminar. I can't tell you how pleased I am and want to thank
each of you for a job well done. Having been responsible for
events like this, albeit on a much smaller scale, I can recognize
all the hard work that went into the seminar. Each member of the
staff is to be congratulated!! The seminar confirmed my belief
that the OIN staff really cares about the success of their
subscribers. Jim, you all should be proud of the work you do to
enrich the lives of so many people. It is one thing to amass a
personal wealth. It is a much higher calling to help others meet
their goals in life. I was very impressed that you were emotional
in your closing remarks. You have so much to be proud of -- helping
people fish all over the world! Thanks again and I look forward
to attending another seminar in the future.
My best regards,
Jim Boettcher
Austin, Texas
**************
I must say, that your seminar was outstanding!!! Sign me up for
next year. It is rare that a person of your position would share
so generously your knowledge of his trade. I hope that I will be
able to put into place much of what you taught. Every aspect of
the seminar was first class, from the hotel, to the food, the
instructors and the luncheon speakers. One of the biggest
surprises was your generosity in handing out material, and gifts.
Two weeks ago I attended a competing option seminar in Chicago
and all I got from the was coffee at the morning break, No
handouts, no food and half of the final day was promoting their
web site and additional classes. I must say your seminar far
exceeds what I got from them.
Sincerely yours,
Mike Lillis
***************
Please pass on my thanks to the entire OIN group for a fabulous
EXPO. The seminar far surpassed any expectation that I would have
fathomed, had I attempted to! OIN has the right attitude and the
obvious ability to be a leader and I look forward to many years
of positive experiences with you folks.
Kind regards,
Gwen Richardson
****************
GREAT JOB TO EVERYONE!
I described this event to my friends as a life changing event!
(options aside) ,the quality of people, dedication, sacrifice
of their time (the second 40+ hours a week they don't have to
work but do) they do this because they care, wanting to help
others change their life dramatically (My wife thinks I was
oxygen deprived up there !) I came back a different person for
those who know me that says a lot. Now for the options side
I have to admit there was so much info to absorb, most of it
came to me on the 2000+- mile ride home it all started to fall
into place I feel Very confident (yes Jim this can be bad but
I know this now!) Notice the patience here guys! that's one
change I have a plan to stick to !
THANK YOU !!!
Allan O'Neill
**************
Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!
For more info:
https://secure.sungrp.com/workshop/april01/index.asp
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****************
MARKET SENTIMENT
****************
We're Waiting!
By Austin Passamonte
Waiting for the non-farm payroll report. Waiting for the FOMC
results. Waiting for PPI, waiting for CPI. Waiting for the Easter
Bunny, Tooth Fairy and Santa Claus as well, because the last
three have equal chance to move the markets in one direction for
weeks that the first three did.
Billions of dollars on the sidelines just waiting to rush in...
for how long now? Waiting for lower interest rates and improving
economy. Well, we got 1.00 full basis-point cut in 28 days time
and the floodgates remain closed.
Do lowered rates equate to an instant-fix for the economy? Are
the masses about to rush out and begin a 1999-type spending
spree? Will the anticipated tax cut erase this year's heating
bills for the bulk of U.S. population that continue to compile?
We sit here staring at charts that move slower than an unplugged
EKG until the final hour of action and then buying ensues. Who's
buying? Beats us, we're busy watching endless block trades of SPX
Feb bear-call credit spreads clearing from 1375 to 1425 strikes.
We also see batches sold short or sold to close after the 4:00pm
bell as well. That is the mark of institutional bias.
We also see VIX & VNX readings slipping down to multi-month lows.
Lots of call-buying going on.
All major index daily-chart stochastic signals are in extreme
overbought or rolling down from there. While these values could
stay pinned up in overbought zones while markets rally, a pull
back for relief is inevitable.
Commercial traders continue to short this market at every
opportunity and have amassed historical bearish positions.
Earnings season (or lack thereof) is drawing to a close. Do we
usually anticipate a nice, strong "post-earnings rally"?
The bullish side of this balance beam is that rates are dropping,
cash is ready and traders anxious to bury the bear. These things
have not been enough to do so as of today, we'll see what
tomorrow may bring.
By now you should know Market Sentiment's trading preference;
We'd like to buy calls every Monday morning and sell them
Thursday afternoon for +400% returns. That would leave a nice,
three-day weekend to work on our golf game. Might even manage to
shoot our body temperature instead of body weight (don't ask).
The time to do both assuredly lies in front of us somewhere down
the road. What may lie just ahead could be another story. Be well
prepared in either event!
*****
VIX
Thursday 02/01 close: 23.99
VXN
Thursday 02/01 close: 60.49
30-yr Bonds
Thursday 02/01 close: 5.46%
Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.
Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.
Thursday
(02/01/2001)
(Open Interest) Calls Puts Ratio
S&P 100 Index (OEX)
Resistance:
760 - 745 6,342 82 77.34
740 - 725 9,670 979 9.88
OEX close: 719.66
Support:
715 - 700 7,657 10,495 1.37
695 - 680 3,524 9,075 2.58
Maximum calls: 740/3,650
Maximum puts : 700/4,978
Moving Averages
10 DMA 711
20 DMA 700
50 DMA 701
200 DMA 758
NASDAQ 100 Index (NDX/QQQ)
Resistance:
74 - 72 29,979 1,673 17.92
71 - 69 72,712 7,639 9.52
68 - 66 44,495 19,092 2.33
QQQ(NDX)close: 65.15
Support:
64 - 62 32,440 33,808 1.04
61 - 59 13,111 55,818 4.26
58 - 56 10,733 19,236 1.79
Maximum calls: 70/59,226
Maximum puts : 60/46,002
Moving Averages
10 DMA 66
20 DMA 63
50 DMA 64
200 DMA 82
S&P 500 (SPX)
Resistance:
1450 13,971 310 45.07
1425 17,806 4,707 3.78
1400 15,722 2,013 7.81
SPX close: 1373.47
Support:
1350 15,049 15,387 1.02
1325 11,439 16,148 1.41
1300 2,958 13,581 4.59
Maximum calls: 1425/17,806
Maximum puts : 1325/16,148
Moving Averages
10 DMA 1360
20 DMA 1339
50 DMA 1334
200 DMA 1417
*****
CBOT Commitment Of Traders Report: Friday 01/26
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.
Small specs are the general trading public with commercials
being financial institutions. Commercials are historically
on the correct side of future trend changes while small
specs are not. Extreme divergence between each signals a
possible market turn in favor of the commercial trader's
direction.
Small Specs Commercials
DJIA futures (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +426 +1909 -7528 -8322
Total Open
interest % (+5.66%) (+20.07%) (-30.35%) (-34.26%)
net-long net-long net-short net-short
NASDAQ 100 (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +1262 +1131 -4061 -4045
Total Open
Interest % (+8.36%) (+6.51%) (-5.90%) (-6.39%)
net-long net-long net-short net-short
S&P 500 (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +69952 +69254 -91053 -89836
Total Open
Interest % (+37.54%) (+37.35%) (-12.11%) (-11.84%)
net-long net-long net-short net-short
What COT Data Tells Us
**********************
Indices: The disparity between Commercials and Small Specs
remains intact on the S&P 500. Small Specs have reduced their
net-long positions on the DJIA while Commercials are showing a
modest reduction in DJIA net-short positions
Interest Rates: Commercials are moderately short T-Bond and
T-Note futures. (mildly Bearish)
Currencies: Commercials continue to build heavily short Euro
futures while small specs build net long. Small specs are betting
on interest rate reduction while commercials remain skeptical.
(Bearish)
Energies: Commercials are net-long crude & oil products at
one year extremes. These producers are hedgers and almost
always take the opposite side of expected market action to
lock-in production prices. They expect lower prices from
here (Bearish)
Metals: Commercials are moving to net-long in Gold, Silver
and Copper from short positions. This has happened quickly
and they expect higher precious metals soon.(Bullish)
COT/CRB: This commodity index measures the entire spectrum of
commodities in overall bullish or bearish outlook. It is now at
a one-year high for commercial bullishness, meaning the outlook
for commodities is long-term positive while equities as a mirror
are considered long-term negative.
Data compiled as of Tuesday 01/16 by the CFTC.
www.OptionInvestor.com
**************
MARKET POSTURE
**************
Please visit this link for Market Posture:
http://www.OptionInvestor.com/marketposture/020101_1.asp
*************************ADVERTISEMENT*********************
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index instead?
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those who know.
Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.sungrp.com/tracking.asp?campaignid=1509
************************************************************
PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.
CALLS:
*****
RATL $50.06 -1.88 (+0.13) Rational sold off in the post Fed
meeting Nasdaq slump, but held above strong support at $48.75.
However, considering an upgrade to strong buy by Prudential
Securities on Wednesday, as well as a new contract with Synopses
which was announced on Thursday, Rational should have been able
to perform better. After breaking out of the bullish wedge
pattern which had developed over the last few weeks, and hitting
a high of $55.25 on Monday, Rational has lost momentum.
ACF $34.94 -0.41 (-0.01) We've earned a decent profit in shares of
Americredit over the last several weeks. And as our readers know,
we recently raised our stop to $35 in order to protect profits.
Accordingly, ACF settled just below $35 Thursday. As such, we're
locking and loading profits. Don't misunderstand the motives
though, we are by no means bearish on ACF in light of the lower
interest rate environment. However, the stock may be due for
consolidation and we'll use that as an excuse to take profits.
Open positions could be exited on any strength Friday morning.
COHR $49.25 -1.69 (-3.00) Over the past couple of weeks, shares
of COHR have been in consolidation mode, digesting its gains so
far this year. In the process, the stock continued to make a
series of higher lows, while encountering resistance overhead at
the $53.75 level. Connecting up-trend support with horizontal
resistance reveals an ascending triangle formation. With
today's pullback, despite the low volume, COHR has fallen not
only below its up-trend line, but along with that, 5 and 10-dma
support at $50.91 and $49.45. With the failed triangle and the
close below our stop price of $50, we are dropping coverage of
this play.
PUTS:
*****
MEDI $42.19 +2.44 (-0.81) The whole biotech sector went to pot
in the last two trading sessions and at first glance, this
appeared to be just peachy for our play on MEDI. On Wednesday,
the share price dwindled to the $40.50 level after sinking about
4% during amateur hour alone. But unfortunately, the fast and
furious decline didn't give us a chance to take positions. The
stock's inability to rebound and crack $41 after the initial
freefall did however, offer day traders a risky venture
opportunity. Although if you were to profit, you had to be
nimble and exit quickly on the end of the day push to $39.50.
Today's bullish behavior aside others in the sector like MLNM
and HGSI who fell victim to profit taking is not only odd, but
essentially gives us notice to exit tonight. The strong upswing
in the last hours of trading indicates the buying may not be
over and we don't want to get caught in the momentum.
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**************************************************************
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**********
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The Option Investor Newsletter Thursday 02-01-2001
Copyright 2001, All rights reserved. 2 of 2
Redistribution in any form strictly prohibited.
To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/020101_2.asp
************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?
Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!
http://www.sungrp.com/tracking.asp?campaignid=1523
**************************************************************
********************
PLAY UPDATES - CALLS
********************
JPM $55.85 +0.86 (+1.66) Expected profit taking across the board
saw JPM giving up minute gains after its spike to $57.33 on
Wednesday morning. Volume was exceptionally heavy at 13.1 mln
shares exchanging versus the ADV of about 10.7 mln. Today the
sell-off continued amid less active trading with buyers stepping
back in at $53.50. The subsequent bounce off that intraday low
and its move back through 5-dma ($55.22) provided a nice entry
point for aggressive traders looking to buy the dip. Buying
into a rally through the $56 level provides a less risky
alternative for those looking for more concrete evidence. The
upper resistance at $59.19 still continues to cap JPM's upward
momentum; although a breakout in the DOW could change all that
in a flash. In response to the Fed's 50-point rate cut, Chase
Manhattan and Morgan Guaranty Trust Company, the banking arms of
JP Morgan Chase said on Wednesday they are cutting their prime
lending rates to 8.50% from 9.0%, effective today.
MUSE $81.94 +1.13 (+3.88) The strong sell-off on Wednesday
prompted us to raise our protective stop to $80 today in a
clear effort to guard our profits from such sharp reversals in
the future. As it turned out, buyers came in off the sidelines
today at $76.50 and bid MUSE back up to the $85 near-term
support level. However, the stock's failure to resurface above
$85 and $86 should raise your radar antennae. Consider waiting
for the NASDAQ to rally through 2800 and for MUSE to
successfully move through $85 and the immediate resistance at
$88.75 before taking additional positions. The enterprising
types might find that intraday dips to the 5-dma ($82.28) or 10-
dma ($79.38) meets their adrenaline requirements. If you choose
to take a lower entry, you may want to exit as MUSE approaches
resistance and then jump back into the momentum on convincing
breakouts. Yesterday Bear Stearns and WR Hambrecht recommended
MUSE as a Buy. Hambrecht's Prakesh Patel cited the "accelerated
demand for infrastructure management and Micromuse's recognition
as the de facto industry standard as key reasons for the
recommendations" and also issued a price target of $90.
COST $46.25 +0.00 (+4.38) Confirming its pattern of higher
lows and a breakout above $44, Costco rested at the $45 support
level for most of Thursday, with a brief dip to $44.44 mid
morning. The retail sector stayed flat for most of the day,
with a move of only a few points. Costco is positioned to
move up to the next resistance level at $50, and possibly
make a run for the 52-week high at $60. Traders can take
positions at current levels, or possibly at another pullback
to support at $45.5. Ideally, we would like to see overall
strength in the retail sector (RLX.X) as well as volume in
Costco which is at least 20% heavier than the average daily
volume of approximately 6.5 million shares. Keep stops at
$44.
NITE $23.25 -0.13 (+3.00) Nite spent Wednesday and Thursday
consolidating, but held up well in the post Fed meeting sell
off. A bullish wedge pattern is developing, with a pattern of
lower highs at $20, $21, and $23, and strong resistance at
$24.38. With further bullish momentum in the brokerage and
investment management sectors, we may see a breakout above
this resistance in the near term future, which could lead
NITE to the next resistance level at the 200 dma of $26.97.
Conservative traders might want to wait for a breakout above
$24.50 with heavy volume. More aggressive traders could
take positions at support at $23 or $22.88, if accompanied by
strength in the major indexes, as well as the brokerage sector.
We are moving stops to $22, to be conservative.
EMC $77.60 +1.61 (-1.46) The bulls held their breath yesterday,
as EMC finally halted its post-FOMC meeting decline fractionally
above our $75 stop. Fortunately this morning, the bulls decided
to do something else, and they gradually bought the stock,
driving it off its lows. Since the Fed announced the interest
rate decrease yesterday afternoon, the NASDAQ has been like a
deer caught in the headlights - unable to muster a significant
move in either direction, and EMC (although it trades on the
NYSE) is caught in the same pattern. Aggressive traders could
have picked up new positions as the stock bounced midday near
$76, but should be watching carefully. The verdict is still not
in as to whether EMC will finally break out over the $80
resistance level in the near future. So while aggressive
traders can continue to target shoot the intraday dips to
improve their entry point, more conservative traders will want
to wait for a decisive breakout over the $80 level before
playing. With volume running at only two-thirds of its ADV,
prudent investors will want to see a return to more normal
levels to confirm the strength of any upward move.
FLEX $38.88 +0.75 (-0.13) The tug of war between the bulls and
bears is continuing unabated and unresolved. Since the
announcement from the Federal Reserve yesterday afternoon,
technology stocks have had a hard time making any headway. On
a positive note, they have not sold off either, leading one to
believe that the rate cut truly was priced into the market.
This seems to be an apt description of FLEX, as it continues
to consolidate its recent gains just below the $40 resistance
level. Of course, support is rising also, and our stop is
ratcheting up to $37 (yesterday's low) tonight. While the
Bollinger bands have expanded, giving our play some headroom,
it is still in a precarious position, with the daily Stochastics
still solidly in overbought territory, and threatening to break
down. Given the possibility of a breakdown in the days ahead,
our preference for new entries is to buy strength. If investors
continue to show their approval for the strong earnings results
from competitor CLS (which announced blowout earnings yesterday
after the close), our play could see a nice breakout over the
$40 level soon, and that would be our opportunity to initiate
new positions.
CTXS $36.25 +0.38 (+2.31) Since its big move on Tuesday, CTXS
has been in consolidation mode. Pulling back fractionally
ahead of the Fed announcement yesterday, the tug-of-war between
the bulls and bears was apparent, as seen by the higher than
average volume. Today, the stock gained fractionally, as CTXS
continues its respite. With its up-trend still firmly intact,
the stock has been encountering horizontal resistance at the
$37.13 level. If buying volume returns, allowing CTXS to cross
over this line of opposition with conviction, this would allow
conservative traders to take a position. Support levels abound,
at $36 and the 5 and 10-dma at $35.35 and $34.87 respectively.
In buying off a bounce, make sure that CTXS closes above our
stop price, now set at $35. In both cases correlate entries
with strengthening of Merrill Lynch's Software HOLDR (SWH).
QCOM $85.25 +1.19 (+4.25) Shares of the CDMA giant continue to
hold the line. Since breaking above 50-dma resistance (now at
$82.71) early this week, this moving average has subsequently
provided support. The past few days of trading have been quiet,
moving in a fairly narrow range on declining volume, as QCOM
consolidates its gains. For aggressive players looking for an
early entry, bounces off the 5-dma at $84.56 and the 50-dma as
well as horizontal support in increments of $1 from $85 to our
stop price of $82 are potential targets to shoot for, provided
that bounces are backed by the return of buying volume. For
lower risk players who are willing to be patient for an entry
on strength, wait for QCOM to take out resistance at $87,
confirming upward momentum with a rising NASDAQ, before
jumping in.
RMBS $50.56 +1.19 (+0.43) For the past couple of weeks, the
proverbial spring has been coiling for shares of RMBS. With
the stock price making a series of higher lows and lower highs
on decreasing volume, RMBS appears to be in the midst of a
triangle formation. While the stock fell yesterday on post-Fed
profit-taking, it bounced nicely today, closing right above
moving average support from the 5 and 10-dma, at $50.36 and
$50.16 respectively. Along with support from the psychological
$50 level, a bounce off these levels could allow aggressive
traders to take a position, but be aware that we are moving our
stop price up to $49. For a safer entry, a break above $52
with conviction, with the Philadelphia Semiconductor Index (SOX)
also moving higher, would be the target to shoot for.
FDRY $22.25 -1.25 (-0.63) One step forward, one step back,
would be an accurate description of trading action in FDRY for
the past couple of days. Coverage initiated by Banc of America
Securities with a Buy rating allowed shares of FDRY to buck the
NASDAQ trend yesterday to gain $1.25 on 1.4 times the average
daily volume. Today, the stock gave it all back, retreating
5.32 percent. The good news is, with today's pullback on only
half the ADV, there appears to be more buying interest than
selling volume. A successful test of moving average support
from the 10-dma at $21.36 along with horizontal support at $22
and $21 could allow higher risk traders to take a position, but
only if FDRY continues to close above our stop price, now at $22.
A move back above the 5-dma at $22.50 with conviction would be
the signal for the more risk averse to jump in, but make sure
that AMEX's Networking Index (NWX) is also advancing before
doing so.
UBS $174.20 -2.45 (+1.75) Yesterday, when UBS finally broke
through and closed above resistance at $176, we were hopeful
that this could be the breakout we were looking for. However,
the low volume that backed the rally showed a lack of
conviction on the part of buyers. As such, the stock fell back
below the $176 watermark today, bouncing off our stop price and
support at $173. Another bounce off this level could be a
potential entry point for higher risk players but as always,
confirm bounces with volume. As well, the $174 area could
provide additional support, with the 5 and 10-dma converged
near that level. For an entry on strength, wait for UBS to
move back above $176, this time with strong buying volume,
before making a play, and correlate entries with strength in
peers BSC, GS and LEH.
*******************
PLAY UPDATES - PUTS
*******************
SPW $101.10 +0.80 (-7.90) Heavy selling continues to push
SPW to lower lows, as the stock exhibits a downward stair step
pattern. Over the last several days, profitable put positions
could have been taken from failed rallied from $109, $107.25,
$104, and today from $102.50. SPW actually broke critical
support at $100 briefly on Thursday, with a drop to $99.65
around 2:00. SPW recuperated from this drop, but only to
hit a lower high at $101.75. The stock is now poised to roll
from $101, which could be a good entry point. A break below
support at $100 on strong volume could be a very bearish
turning point, and conservative put players might want to
wait for this point. SPW is scheduled to report earnings on
February 13th, so traders have over a week to continue this
play. We are moving stops to $102, as a move above this level
could indicate the reversal of the down trend.
ADBE $45.44 +1.75 (-12.63) The numbers have changed somewhat,
but the game is still the same - pick on the weakling. We
picked up on ADBE's weakness just before their earnings warning,
and aggressive traders that got in before the warning, grinned
all the way to the bank. Since hitting bottom at $42.38, buyers
have arrived to prop up ADBE's share price, and we have watched
it creep to within spitting distance of our $46 stop. Today, we
watched the stock recover a bit and add 4% on almost triple its
average daily volume. So the big question is, should we stay or
go? Given the overextended nature of the broader markets, we
think it is a safe bet that ADBE has more downside in store for
us. If the major indices roll over, companies that have freshly
warned about the future will likely be fresh in investors'
minds, and should lead the decline. If you want to play it
cautiously, consider new positions as ADBE falls below today's
low ($44.19) on solid volume. A rollover from resistance (near
$46) looks attractive as well, jut make sure you aren't trying
to catch a "bouncing knife." Wait for the rollover before
jumping into the play.
IDPH $57.06 -1.75 (-6.25) Off to a great start, IDPH gave up
more ground today, driven by the continuing declines on the
broader Biotech Index (BTK.X). While it wasn't a huge loss for
the day, our play's continued decline pushed the daily
stochastics further below the overbought zone, and solidifying
the emerging downtrend. Given the nearly $10 drop in the past
3 days, it is no surprise that all of the stock's moving
averages are arrayed overhead, creating a fair amount of
resistance between $60-62. Part of the recent weakness may be
due to the comments made by Peter Ginsberg of Piper Jaffray on
Tuesday. Commenting on the company's recent earnings report,
the analyst said although it was an excellent fourth quarter,
that he expects expenses for the company to keep rising, and he
proceeded to trim his earnings estimates for both 2001 and 2002.
In the next breath, he reiterated his Buy rating on the stock,
saying "We recommend accumulating Idec on dips". We'll leave it
for the markets to sort out which way IDPH should go, but if
the Biotechs remain weak, we should be able to milk some more
profits from this downtrend. Conservative investors are on the
cusp of an entry point, and will want to consider new positions
as the bears drive the stock below today's intraday low
($56.38). Aggressive traders can still buy the failed rallies
to resistance, but note that we have moved our stop down from
$62 to $60, meaning that the rallies must be fairly weak. Of
course, as long as the BTK.X is weak, IDPH is likely headed
further south, making for good conservative entry points.
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**************
NEW CALL PLAYS
**************
AGGRESSIVE:
MWD - Morgan Stanley Dean Witter $89.80 +5.00 (+7.30 this week)
MWD is the #2 retail broker in the US only after Merrill Lynch.
The 1997 merger of Morgan Stanley and Dean Witter created an
investment banking and retail brokerage powerhouse. The company
is now a global financial service firm with three primary
business segments: securities, asset management, and credit
services. Its Discover unit has been one of the leading credit
card issuers. MWD has more than 430 branches in the US and some
30 more abroad. Its clients include both individuals and
institutions.
Financial stocks tracked higher in recent weeks in anticipation
of another rate cut; notwithstanding the general concerns that a
cooling US economy is creating a cautious environment within the
industry. But come on now, the current investment climate
offers a multitude of revenue opportunities for bankers and
brokerage houses alike. Consider the recent trading trends of
stocks like JP Morgan (JPM), Merrill Lynch (MER), and Citigroup
(C) - all have been trading near their highs! It's simple,
lower rates benefit the group. The move by some investors this
week to take profits had little impact on their respective
support levels. MWD traded confidently in the $84 and $86
range. Tuesday's positive analyst meeting in which top executive
indicated that they foresee little need for "massive staff cuts"
and that they were continuing to look for ways to advance its
global platform in key markets obviously soothed analysts
concerns about leadership and the potential for more turnover at
the firm. Last week, shares suffered when the firm confirmed
that its president and COO, John J. Mack, was stepping down in
March as the result of an internal power struggle. With that
sentiment in mind and today's fantastic 6%, or $5.00 breakout,
coupled with the stock's bullish close on its daily high
convinced us that MWD has what it takes to keep rolling. But
we're not taking any unnecessary chances here. Our protective
stop is firmly set at the former resistance of $86 and we'll
exit if MWD cannot maintain a bullish disposition above that
mark. A pullback to that precarious level followed by strong
upward bounces provide an aggressive entry into the trend.
The more cautious types might consider buying on intraday dips
near $88 if MWD breaks to the upside of $90 on strong volume.
While it's true that MWD is technically sound, this play is
based on the stock's sheer upward momentum, sector strength and
the anticipation of a market rally over the near-term. The
company's earnings shouldn't come into play for a couple of
weeks. Morgan Stanley is expected to report sometime in mid-
March.
BUY CALL FEB-85 MFZ-BQ OI= 4325 at $7.00 SL=5.00
BUY CALL FEB-90*MFZ-BR OI=20697 at $3.80 SL=2.25
BUY CALL FEB-95 MFZ-BS OI= 3153 at $1.75 SL=0.75
BUY CALL MAR-90 MFZ-CR OI= 764 at $6.40 SL=4.50
BUY CALL MAR-95 MFZ-CS OI= 350 at $3.80 SL=2.25
http://www.premierinvestor.com/oi/profile.asp?ticker=MWD
IBM - Intl. Business Machines $114.05 +2.05 (-0.14 this week)
IBM was incorporated in the state of New York on June 15, 1911 as
the Computing-Tabulating-Recording Company. But its origins can
be traced back to 1890, during the height of the Industrial
Revolution, when the United States was experiencing waves of
immigration. The U.S. Census Bureau knew its traditional methods
of counting would not be adequate for measuring the population,
so it sponsored a contest to find a more efficient means of
tabulating census data. Today, IBM strives to lead in the
creation, development and manufacture of the industry's most
advanced information technologies, including computer systems,
software, networking systems, storage devices and microelectronics.
Despite a slowing economy, Big Blue did not disappoint, as it
posted a stellar earnings report two weeks ago, beating analyst
estimates by two cents and exceeding projected revenue numbers.
An environment of lowered interest rates could increase capital
expenditures, directly benefiting Blue Blue's bottom line. What's
more, Chairman and CEO Lou Gerstner commented that the company was
well positioned to weather the uncertain economic times ahead.
The Street was expecting that IBM would miss earnings, due to
fears of the slowdown in PC sales. However, bullish comments
during the conference call combined with the upside earnings
surprise allowed shares of IBM to gap up above its 100-dma (now
at $102.80) the next day and with that, Big Blue has also cleared
its last line of moving average resistance, the 200-dma at
$108.32. Since then, the stock has moved higher with a rising
market and at this point, looks poised to take out what could be
formidable resistance at $120. A break above the 5-dma at
$114.36 could provide conservative traders with an entry on
strength, but we would recommend waiting for IBM to cross over
$115 resistance before taking a position. For higher risk
players looking to enter on a dip, horizontal support can be
found at the 10-dma near $112 and $110 as well as at our
protective stop price of $111. As a major component of the DOW
30, keep an eye on this Index as a measure of sentiment in the
large cap blue chip stocks.
BUY CALL FEB-110 IBM-BB OI=8275 at $6.10 SL=4.00
BUY CALL FEB-115*IBM-BC OI=8970 at $3.00 SL=1.50
BUY CALL FEB-120 IBM-BD OI=9596 at $1.05 SL=0.00
BUY CALL MAR-115 IBM-CC OI=1410 at $5.70 SL=3.50
BUY CALL MAR-120 IBM-CD OI=3100 at $3.40 SL=1.75
http://www.premierinvestor.com/oi/profile.asp?ticker=IBM
*************
NEW PUT PLAYS
*************
AGGRESSIVE:
HGSI - Human Genome Sciences $58.44 -2.56 (-4.38 this week)
Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics. Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.
Investors have decided that its time to beat up on the Biotechs
again, and leading stocks in the sector, like HGSI, are leading
the way lower. After battling with the bulls last week around
the 200-dma, the bears emerged victorious over the past few
days, as they kept the stock below this important level.
Rolling over right at the descending trendline (now at $66),
HGSI has since then fallen below all of its major moving
averages, and even the $60 support level couldn't hold back
the selling. The next levels that might support prices are
intraday support at $56, then $53, followed by the early January
lows near $46. Barring a surprise positive news announcement,
it looks like HGSI will follow the broader Biotech sector
(BTK.X) lower as the company's earnings report approaches.
Currently scheduled for February 13th, we are expecting little
runup into the numbers, as revenues have been weakening and
losses widening over the past few quarters. Stochastics have
recently rolled over and dropped out of overbought territory,
and volume, although only two-thirds of the ADV, is increasing
again. With major support at $60 expected to hold back any
relief rallies, we are placing our stop at $61. Any move higher
than that will be a solid indication that the bulls are back.
In the meantime, use intraday rallies to resistance as an
opportunity to initiate new positions. More conservative
traders will want to wait for selling volume to move up near
the ADV and pressure HGSI down through the $56 intraday support
level before playing. Of course, we must keep our eye on the
BTK.X. Continued weakness there will make the sledding that
much easier for the bears.
BUY PUT FEB-60 HHA-NL OI=281 at $6.38 SL=4.25
BUY PUT FEB-55*HHA-NK OI=408 at $3.88 SL=2.25
BUY PUT FEB-50 HHA-NJ OI=751 at $2.19 SL=1.00
http://www.premierinvestor.com/oi/profile.asp?ticker=HGSI
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**********************
PLAY OF THE DAY - CALL
**********************
COST - Costco $46.25 +0.00 (+4.38 this week)
Costco Wholesale Corporation operates membership warehouses
based on the concept that offering members very low prices on
a limited selection of nationally branded and selected private
label products in a wide range of merchandise categories will
provide high sales volumes and rapid inventory turnover. Costco's
warehouses generally operate on a seven day, 68-hour week, and
are open somewhat longer during the holiday season.
Most Recent Write-Up
Confirming its pattern of higher lows and a breakout above $44,
Costco rested at the $45 support level for most of Thursday, with
a brief dip to $44.44 mid-morning. The retail sector stayed flat
for most of the day, with a move of only a few points. Costco is
positioned to move up to the next resistance level at $50, and
possibly make a run for the 52-week high at $60. Traders can
take positions at current levels, or possibly at another pullback
to support at $45.5. Ideally, we would like to see overall
strength in the retail sector (RLX.X) as well as volume in
Costco which is at least 20% heavier than the average daily
volume of approximately 6.5 million shares. Keep stops at $44.
Comments
Fantastic entry point today as COST pulled back to support at
$44.50. This morning's action was slight profit-taking after
Wednesday's breakout. Buyers took the stock higher into the
close though, on higher volume to boot. Look for any pullbacks
to intraday support at $45, along with continued buying interest,
for entry points. If they buy it off the start tomorrow, look
to $46 as support. Overhead, there is little as far as resistance,
other than Wednesday's high of $46.38.
BUY CALL FEB-45 *PRQ-BI OI=1293 at $2.88 SL=1.50
BUY CALL FEB-47.5 PRQ-BW OI=2058 at $1.44 SL=0.75
BUY CALL MAR-45 PRQ-CI OI= 130 at $4.00 SL=2.50
BUY CALL MAR-47.5 PRQ-CW OI= 98 at $2.81 SL=1.50
www.premierinvestor.com/oi/profile.asp?ticker=COST
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************************
COMBOS/SPREADS/STRADDLES
************************
Investors Flock To Blue-Chips!
Industrial stocks continued to lead the market today in the wake
of the Federal Reserve's optimistic outlook for interest rates.
Wednesday, January 31
Technology stocks retreated today as investors took profits after
the Fed's decision to cut interest rates by 50 basis points. The
NASDAQ closed down 65 points at 2,772. Industrial stocks ended
relatively unchanged, with the Dow finishing at 10,887. The S&P
500 index was down 7 points to 1,366. Trading volume on the NYSE
reached 1.25 billion shares, with winners beating losers 1,781 to
1,369. Activity on the NASDAQ was very heavy with 2.37 billion
shares exchanged, as declines outpaced advances 2,067 to 1,776.
In the bond market, the U.S. 30-year Treasury moved up 1 11/32,
pushing its yield down to 5.50%.
Tuesday's new plays (positions/opening prices/strategy):
Forest (NYSE:FRX) FEB57P/60P $0.40 credit bull-put
Jefferson (NYSE:JP) FEB70C/65P $1.55 debit strangle
Both of our new positions offered favorable entry opportunities
in today's volatile session.
Portfolio Plays:
The Federal Reserve concluded its first meeting of 2001 with an
outcome that most investors were expecting; the FOMC reduced its
its primary short-term interest rate target by another one-half
percentage point. The move marked the second time the Fed has
lowered interest rates this month in an attempt to bolster the
flagging U.S. economy and comments by the committee suggest they
are prepared to reduce interest rates further in the near future.
The stock market accepted the announcement as manifest destiny
and a classic "sell the news" effect pulled most sectors lower
late in the session. Chip companies were among the few bullish
issues on the NASDAQ and on the Dow, retail and cyclical shares
led the industrial groups. In broader market activity, investors
moved out of technology issues and into defensive and cyclical
shares. Major oil companies and transport shares were popular
while computer software, brokerage and utility stocks generally
consolidated. At the close, most analysts held an optimistic
outlook for the future, with some experts boosting their target
ratios for equity holdings in long-term mutual funds.
Our portfolio saw bullish activity in a number of sectors but some
disappointing earnings reports weighed heavily on the technology
group. AOL Time Warner (NYSE:AOL) was a big mover, trading in a
$7 range after beating consensus fourth-quarter earnings estimates
of $0.14 a share by a penny and saying it expects to meet guidance
for 2001. The volatility was exactly what we needed to make our
debit straddle profitable, but you had to pick an exit point when
the trend reversed after the FOMC announcement. Our best efforts
to call the turn fell far short of the day's maximum range with a
$6.90 credit overall. The options traded individually as high as
$7.60, depending on when you exited each position. Because the
straddle required separate closing orders to become profitable, we
will not list it (yet) as a winning play in the monthly summary.
However, those of you that did not sell the bullish (call option)
position after both the interest rate and earnings announcement
will likely be less profitable in the end. Earnings-related news
also had a significant impact on Avant! (NASDAQ:AVNT). The issue
slid almost 20% after postponing its quarterly earnings release,
saying it is still completing a year-end audit. Fortunately, the
synthetic position offered a great early-exit opportunity Monday
and traders who did not close the bullish play may eventually own
the issue. There were a few technology stocks that performed well
including Varian (NASDAQ:VARI), which closed $2 higher at $45 and
International Rectifier (NYSE:IRF), which ended up $1.60 at $54.
NS Group (NYSE:NSS) and Steven Madden (NYSE:SHOO) were among the
top performers in the small-cap category and traders who are in
those positions have enjoyed excellent returns. In the Straddles
section, we noticed five (5) contracts traded in Tri-Continental
(NYSE:TY) options but they appeared to be at the "offer." It was
probably someone entering the position, but that's very strange
as the overall debit for the straddle is now well above our entry
target.
Thursday, February 1
Industrial stocks continued to lead the market today in the wake
of the Federal Reserve's optimistic outlook for interest rates.
The Dow ended 96 points higher at 10,983 on strength in blue-chip
issues. Technology stocks did not perform as well, but the NASDAQ
closed up 10 points at 2,782. The S&P 500 index finished 7 points
higher at 1,373. Trading volume on the NYSE reached 1.09 billion
shares, with winners beating losers 1,726 to 1,375. Activity on
the NASDAQ subsided after some recent extreme sessions, with only
1.77 billion shares exchanged. Technology declines beat advances
1,970 to 1,828. In the bond market, the U.S. 30-year Treasury
rose 28/32, pushing its yield down to 5.44%.
Portfolio Plays:
Old economy stocks rallied today, led by strength in cyclical and
consumer products shares. The Dow Jones Industrial Average moved
higher amid buying pressure in defensive companies with Alcoa
(NYSE:AA), Procter & Gamble (NYSE:PG) and Philip Morris (NYSE:MO)
leading the charge. Blue-chip technology stocks also fared well
with Microsoft (NASDAQ:MSFT), Intel (NYSE:INTC) and International
Business Machines (NYSE:IBM) enjoying favorable advances. Among
major NASDAQ groups, Internet and hardware issues slumped while
select telecom and electronics manufacturers edged higher. The
broader market saw gains in pharmaceutical, brokerage, gold and
paper shares while oil and oil service, utility, biotechnology,
and retail issues generally retreated. Our portfolio witnessed
new strength in value stocks and small-cap issues, but hi-tech
shares continued to suffer. Overall, there was little activity
of significance during the session but we did enjoy the movement
in AOL Time Warner (NYSE:AOL) shares. AOL's volatility provided
some excellent profits in our recent debit straddle, with the
issue completing a $10 swing in just two days. Traders that used
a simultaneous exit order to close the straddle achieved a credit
near $6.75, just short of the 20% target return for the position.
Another position in that category, Tri-Continental (NYSE:TY) is
performing very well for our conservative traders, and the debit
straddle is profitable after less than one week in play. On the
downside, Lennar (NYSE:LEN) failed again in its test to overcome
resistance at the 30-DMA (exponential); a bearish indication,
and Union Carbide (NYSE:UK) appears to ready to test the buying
support near our sold (call option) strike at $55. Lets hope the
trial is a dismal failure.
******************************************************************
- NEW PLAYS -
One of our readers asked for some conservative time-selling plays
on blue-chip issues. The search produced two industrial stocks
and a recovering networking company. All of these positions are
calendar spreads based on a simple concept; time erodes the value
of the near-term option at a faster rate than the far-term option.
There is a brief description of the basic strategy (using LEAPS
and Covered-calls) at:
http://206.156.110.182/archive/readerswrite/052500_1.asp
In addition, I am always willing to provide information on common
techniques. Send your questions on combination strategies to:
Contact Support
******************************************************************
CLX - Clorox $35.75 *** Merger Speculation! ***
The Clorox Company (NYSE:CLX) is engaged in the production and
marketing of non-durable consumer products sold primarily through
grocery and other retail stores. These business operations are
represented by the company's United States Household Products and
Specialty Products and International segments. The United States
Household Products and Canada segment includes their household
cleaning, bleach and other home care products, water filtration
products marketed in the United States and all products marketed
in Canada. The United States Specialty Products segment includes
the company's charcoal, automotive care, cat litter, insecticide,
fire log, dressings, sauces, professional products, food storage
and disposal categories. The International segment includes the
company's overseas operations, exports and Puerto Rico, primarily
focuses on the laundry, household cleaning, automotive care and
food storage and disposal categories.
Clorox shares rallied today on speculation of a potential merger
with Anglo-Dutch packaged food company Unilever Plc. The stock
moved higher on heavy volume and trading in the OTM call options
was substantial, bringing the front-month Implied Volatility to
extreme levels. While it's not our general nature to use time
spreads for buyout candidates, the combination of favorable option
pricing and bullish technical indications suggest that this play
offers a reasonable risk/reward opportunity for traders who favor
the technique. If there is no announcement before the February
options expire, we will make adjustments to the position based on
the technical outlook for the underlying issue.
PLAY (speculative - bullish/calendar spread):
BUY CALL JUL-40 CLX-GH OI=487 A=$3.00
SELL CALL FEB-40 CLX-BH OI=550 B=$0.50
INITIAL NET DEBIT TARGET=$2.30-$2.40 TARGET ROI=50%
http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CLX
******************************************************************
HWP - Hewlett Packard $36.86 *** Portfolio Play! ***
Hewlett-Packard (NYSE:HWP) is a global provider of computing and
imaging solutions and services for business and the home. HWP's
major businesses include Imaging and Printing Systems, Computing
Systems and Information Technology (IT) Services. Imaging and
Printing Systems provides laser and inkjet printers, copiers,
scanners, all-in-one devices, personal color copiers and faxes,
digital senders, wide- and large-format printers, print servers,
network-management software, networking solutions, photography
products, imaging and printing supplies, imaging and software
solutions, and related professional and consulting services.
Computing Systems provides computing systems for the enterprise,
commercial and consumer markets. IT Services provides consulting,
education, design and installation services, ongoing support and
maintenance, proactive services like mission-critical support,
outsourcing and utility computing capabilities.
Hewlett Packard is one of our favorite technology issues and the
long-term outlook for the company is excellent from a fundamental
viewpoint. In addition, the stock historically has robust option
premiums and its relatively steady price movement is well suited
to time-selling strategies. Traders who believe there is upside
potential in the issue can speculate conservatively on its future
movement with this LEAPS with Covered-calls position.
PLAY (conservative - bullish/calendar spread):
BUY CALL JAN02-40 WPW-AH OI=1399 A=$7.40
SELL CALL FEB01-40 HWP-BH OI=13561 B=$0.95
INITIAL NET DEBIT TARGET=$6.25 TARGET ROI=100%
http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=HWP
******************************************************************
CS - Cabletron Systems $21.99 *** On The Rebound! ***
Cabletron (NYSE:CS) is a holding company for new infrastructure
companies focused on the Internet economy. Cabletron currently
has four subsidiary companies: Aprisma Management Technologies,
Enterasys Networks, GlobalNetwork Technology Services and
Riverstone Networks. These subsidiaries were established to
enable the company to focus on the key high-growth areas of the
communications marketplace, including infrastructure management,
enterprise e-business, professional services and Internet service
providers. Aprisma is a leading provider of unique and intuitive
multi-vendor management solutions that meet the service level
requirements of enterprise and service provider customers.
Enterasys Networks is focused exclusively on providing network
infrastructure to the virtual enterprise. GNTS is one of the
largest independent network consulting firms in the world and
Riverstone is focused on emerging content and infrastructure
service provider markets.
Cabletron Systems is a complex company that few analysts have
been able to accurately value in the past. The upcoming IPO
of Riverstone Networks has further complicated the situation
and experts are again at a loss to put a legitimate price on
the parent corporation. Fortunately, investors are far less
concerned with critical fundamental data; they simply want to
buy low and sell high. In this case, Cabletron's share value
is in the midst of a significant recovery and the technical
indications suggest the trend will continue. Traders who want
to benefit from a steady upward movement in the stock may be
interested in this time-selling position.
PLAY (conservative - bullish/calendar spread):
BUY CALL JUL-25 CS-GE OI=327 A=$3.40
SELL CALL FEB-25 CS-BE OI=870 B=$0.60
INITIAL NET DEBIT TARGET=$2.70-$2.80 TARGET ROI=50%
http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CS
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